Blake Christian, HCVT Tax Partner | Mike Bussiere, Tax Manager | Kaitlynn Robertson, HCVT Tax Intern

April 2, 2026

As the current Opportunity Zone program approaches its December 31, 2026 deadline, taxpayers are evaluating how to position capital gains to access potential next-generation incentives (“OZ 2.0”).

To qualify for the federal and state Opportunity Zone tax benefits, taxpayers must invest eligible capital gains into a Qualified Opportunity Fund (“QOF”) within 180 days of when the gain is recognized (IRC §1400Z-2(a)(1)(A)). Since the current Opportunity Zone program (“OZ 1.0”) ends on December 31, 2026, many taxpayers are looking for ways to delay their 180‑day period so they can still invest in the new Opportunity Zone program (“OZ 2.0”), which is eligible for investments beginning January 1, 2027.

Three primary strategies may allow taxpayers to time a 2026 capital gain so that it can be invested into a QOF after calendar 2026.

1. Passthrough Entity Planning Strategies

Under Reg. §1.1400Z2(a)-1(c)(2), a partnership or flowthrough entity may:

• Elect to invest the capital gain at the entity level (starting its own 180-day period), or
• Allocate the capital gain to partners, S Corp shareholders or Trust beneficiaries, allowing each owner to independently determine their 180-day reinvestment period.

If the gain is allocated to the entity’s owners, they may choose one of three start dates for the 180-day period:

1. Sale date (note: the date of sale counts towards the 180-day period)
2. Partnership’s year end
3. Partnership’s tax return due date (without extensions)

Planning Opportunities:

• Sell assets late in the tax year (on or after July 10, 2026) to shift the 180-day period into 2027
• Structure ownership through passthrough entities (e.g., partnerships, S Corps or trusts) to enable flexible start-date elections

These elections can provide meaningful flexibility, particularly for taxpayers anticipating OZ 2.0 eligibility beginning in 2027.

Examples:

• Selling an asset on or after July 10, 2026 and funding the QOF on January 4, 2027 (the first banking day of 2027) or later within the applicable180-day period
• A partner receiving a K-1 gain and electing either December 31, 2026 or March 15, 2027 (Form 1065 due date) as the 180-period start date
• Extending the QOF funding deadline into June or September 2027 (180 days after the selected start date)

2. Installment Sale Planning Considerations (IRC §453)

Under IRC §453, a sale in which at least one payment is received after the close of the taxable year in which the sale occurs, allows the taxpayer to recognize gain when payments are received. Each installment payment triggers a separate capital gain and a new 180-day period.

Under Reg §1400Z2(a)-1(b)(11)(viii)(B), a taxpayer recognizing a gain from an installment sale can choose to start the 180-day period on:

1. The date the payment was received, or
2. The last day of the taxable year in which the payment is received (December 31 for most taxpayers)

Example:

• A sale occurs in calendar 2026
• 80% of proceeds are received in 2026, and 20% in 2027

• Even if the sale occurs in early 2026, the installment structure allows the 2026 proceeds (80%) to be treated as received on December 31, 2026.
• As a result, the gain can be invested into a QOF within the first 179 days of 2027 (through June 28, 2027)
• Payments received in 2027 generate new OZ‑eligible gains for OZ 2.0, with a new 180-day investment period

3. Coordinating Strategies for Maximum Flexibility

Taxpayers may also consider combining both strategies to further extend the QOF investment window:

• Hold the asset in a partnership structure
• Structure the transaction as an installment sale and a sale of assets (rather than a sale of partnership interests)
• Allocate gain to owners who can:
• Elect a year-end (December 31, 2026) or tax return due date (March 15, 2027) start date, and/or
• Invest installment proceeds within 179 days of the receipt

When coordinated effectively, these strategies can extend the investment window well into 2027.

OZ 1.0 Deferred Gain Recognition Considerations

Taxpayers with existing OZ 1.0 investments should also plan for required gain recognition no later than December 31, 2026.

Discounting rules which can reduce the amount of gain recognized on that date are discussed in our Tax Alert “2026 – A Pivotal Planning Year for Opportunity Zone Investors and Fund Managers”.

Key Considerations and Limitations

Legislative Risk (OZ 2.0)

• Treasury may issue regulations limiting OZ 2.0 funding to past-2026 gains, although this would be inconsistent with OZ 1.0 guidance

Economic Substance and Compliance Considerations

• Transactions must have a substantial business purpose
• Installment sales must reflect genuine credit risk and commercially reasonable payment terms
• Related-party and disguised sale rules must be carefully followed

State Tax Considerations

• Some states (e.g., California, Arkansas, North Carolina, New York, and Massachusetts) do not conform to federal OZ rules

These strategies should be evaluated carefully in light of evolving regulatory guidance and individual taxpayer circumstances.

Conclusion

As 2027 approaches, proactive planning will be critical for taxpayers seeking to bridge current Opportunity Zone rules with potential OZ 2.0 benefits.

Through careful structuring of passthrough entity transactions and installment sales, taxpayers may be able to defer the 180-day QOF investment window into 2027. Even for those not currently planning an OZ investment, these strategies can significantly extend the timeframe to make a future deferral election.

Additional Resources

For additional insights and planning considerations, please explore the following resources:

• HCVT Opportunity Zones
• Opportunity Zones Extended and Expanded Under OBBB
• HCVT in the News
• Update on Opportunity Zones and Other Gain Deferral Strategies
• 8 Opportunity Zone Gain Rules That May Aid Investors

If you would like to discuss how these strategies may apply to your specific situation, please contact the HCVT Opportunity Zone team at: OZTeam@hcvt.com or (435) 200-9262.